The euro extended its decline against the U.S. dollar in the session, erasing all gains made today in the Asian session when it was boosted due to news that the ECB purchase of Italian and Spanish debt initially alleviating concerns of debt contagion in the euro zone. However, this wave of optimism was very short lived as investors have doubts about the crisis being contained to the peripheral region and not spread to the core euro zone countries. EURUSD dropped to a session low of 1.4149 from the open of 1.4268.
Sterling followed the euro’s direction as risk aversion pushed investors away from riskier assets like the Pound to safe havens. Concerns of a global economic slowdown will hurt the British economy further as a recent spate of poor U.K. economic data gave evidence of slow growth. Meanwhile, the Bank of England quarterly inflation report is due on Wednesday,which if it includes a negative growth outlook for the U.K. economy, will knock down the Pound even further. GBPUSD fell to a low of 1.6295 from the session open of 1.6404.
The Swiss franc hit new record highs against both the dollar and the euro in the North American trading session as flight to safety pushed investors to the safe haven Swiss currency. The S&P downgrade of the United States raises uncertainty about the credibility of the U.S in the global economy as investors worry about another recession. The credibility of the U.S. government is also at stake now and whether it would be able to deal with further debt issues, since the recent deadlock in the debt ceiling talks proved how divided the U.S. government is instead of being united in times of financial crisis. USDCHF hit a record low of 0.7480. Meanwhile, the euro zone debt issues weighed on the euro today as well, since the optimism that the ECB will halt debt contagion in the region by purchasing Italian and Spanish bonds, has faded away. EURUSD touched a record low of 1.0613.
Yen continued to gain strength leading USDJPY to extend its decline to 77.50 as investors dumped the dollar after the S&P downgrade the U.S. credit rating. The Yen is perceived to be a safer currency during these times of financial uncertainty when the S&P downgrade knocked down investor confidence in the economic recovery of the U.S. and the rest of the world. However, the markets are cautious that Japanese authorities will re-intervene in the market if the dollar falls to the level at which it sold yen for dollars last week in an attempt tot curb yen strength.
Canada’s dollar weakened to a near five-month low against its U.S. counterpart, as fears of a double-dip recession south of the border increased after news of the U.S. credit downgrade by S&P. The U.S. is a major trading partner of Canada so any slowdown in growth there will spill over to Canada. Additionally, falling crude oil prices today dragged down the loonie, which is a commodity-linked currency since Canada is a crude oil exporter, mainly to the U.S. USDCAD rose to 0.9925, the highest level since March 17.
Gold climbed yet to another historic high in New York trading to $1,720.32. Demand for the safe haven asset, which seems to be the only one at the moment, has surged today as investors flee from risk due to mounting concerns on debt issues on both sides of the Atlantic and a slowdown in global economic growth.